Jan. 4 (Bloomberg) -- The European Central Bank will increase its key interest rate three times this year to 4.25 percent, said economists at UBS AG, raising their forecast that the rate wouldn't reach that level until 2008.

``Recent data have shown that growth should be even more resilient than we previously expected, while the ECB could receive more information on upward risks for inflation,'' said Edward Teather, a London-based economist at UBS, in a note to clients.

The ECB last month lifted its benchmark rate to 3.5 percent, up from 2 percent a year earlier. ECB President Jean- Claude Trichet said in a Dec. 20 interview that the bank ``will do whatever is necessary to ensure price stability.''

The UBS forecast was higher than those of 16 banks polled last month by Bloomberg News. The median estimate of that survey was for the ECB to stop raising rates at 4 percent this year. The estimate also exceeds traders' expectations. Futures contracts suggest the rate won't reach 4 percent this year.

The yield on December rate contracts was 4.08 percent today. The contracts settle to the three-month interbank offered rate for the euro, which has averaged 16 basis points more than the ECB's benchmark rate since the currency's start in 1999.

Expansion in European service industries, the biggest part of the economy, unexpectedly slowed in December, a sign economic growth may have peaked. Royal Bank of Scotland Group Plc's services index, which is based on a survey of purchasing managers by NTC Economics Ltd., fell to 57.2 from 57.6 in November. A reading above 50 indicates expansion. Economists expected the index to remain unchanged, the median of 24 estimates in a Bloomberg News survey showed.

Jan. 4 (Bloomberg) -- The European Central Bank will increase its key interest rate three times this year to 4.25 percent, said economists at UBS AG, raising their forecast that the rate wouldn't reach that level until 2008.

``Recent data have shown that growth should be even more resilient than we previously expected, while the ECB could receive more information on upward risks for inflation,'' said Edward Teather, a London-based economist at UBS, in a note to clients.

The ECB last month lifted its benchmark rate to 3.5 percent, up from 2 percent a year earlier. ECB President Jean- Claude Trichet said in a Dec. 20 interview that the bank ``will do whatever is necessary to ensure price stability.''

The UBS forecast was higher than those of 16 banks polled last month by Bloomberg News. The median estimate of that survey was for the ECB to stop raising rates at 4 percent this year. The estimate also exceeds traders' expectations. Futures contracts suggest the rate won't reach 4 percent this year.

The yield on December rate contracts was 4.08 percent today. The contracts settle to the three-month interbank offered rate for the euro, which has averaged 16 basis points more than the ECB's benchmark rate since the currency's start in 1999.

Expansion in European service industries, the biggest part of the economy, unexpectedly slowed in December, a sign economic growth may have peaked. Royal Bank of Scotland Group Plc's services index, which is based on a survey of purchasing managers by NTC Economics Ltd., fell to 57.2 from 57.6 in November. A reading above 50 indicates expansion. Economists expected the index to remain unchanged, the median of 24 estimates in a Bloomberg News survey showed.